Reports say that Spain is slashing the prices it pays for renewable energy, as part of an aggressive response to its debt crisis. Spanish bonds were downgraded this week, and today it announced that unemployment has risen above 20%. Spain already has the third highest deficit in the EU, after Ireland and Greece, which is driving up the risk premium on its bonds. The higher interest rates, in turn, further drive up the deficit.
Spain has used generous feed-in tariffs to spur the development of renewables such as solar and wind power, but the tariffs were so popular that the cost of the subsidies soared. (Some worry that Ontario will have the same experience with our Green Energy Act.) Now, Spain must find places to make major financial cuts, while extending unemployment benefits. Renewable energy is a comparatively easy place to reduce expenditures, especially when short term issues overwhelm long term ones.